2000 (8) TMI 1022 - HC - Companies Law

Summary

Issues Involved:

1. Jurisdiction of the Company Law Board (CLB) u/s 397/398.
2. Division of assets and application of the principle of dissolution of partnership.
3. Implementation of a private agreement between the parties.
4. Interdependence of company divisions.
5. Notice to creditors before division of assets.

Summary:

1. Jurisdiction of the CLB u/s 397/398:

The appellants argued that the CLB had no grounds to assume jurisdiction u/s 397/398. The court noted that both groups had made allegations of oppression and mismanagement against each other, justifying the CLB's intervention. The court also observed that the petition was not based on an isolated incident but on a series of events indicating a deadlock and lack of probity between the parties.

2. Division of assets and application of the principle of dissolution of partnership:

The appellants contended that the CLB could not order the division of assets and should have directed the purchase of shares of the minority by the majority. The court held that the CLB has wide powers u/s 402 to pass any order it considers just and equitable, including the division of assets. The court found that the company had the characteristics of a partnership and that the division of assets was a just and equitable solution to the deadlock between the two groups.

3. Implementation of a private agreement between the parties:

The appellants argued that the CLB could not implement a private family settlement agreement. The court clarified that the CLB's order was based on the Articles of Association, which had been amended to incorporate some terms of the family settlement. The order did not enforce the family settlement but relied on the Articles of Association.

4. Interdependence of company divisions:

The appellants claimed that the divisions of the company were interdependent and could not survive without each other. The court rejected this argument, noting that the company had operated without the Forge Division for many years and that the divisions could function independently. The court also highlighted that the CLB had provided safeguards to protect the interests of both groups.

5. Notice to creditors before division of assets:

The appellants argued that the division of assets could not be ordered without notifying the creditors. The court found that major secured creditors, ICICI and State Bank of India, were already before the CLB. The court also noted that no creditors had raised objections and that the CLB had provided safeguards to protect their interests.

Conclusion:

The court dismissed both appeals, upholding the CLB's orders dated 30-11-1999 and 12-1-2000, which provided for the division of the company's assets. The court found that the CLB's orders were justified, equitable, and in accordance with the law.